Accounting Theory

Overview

Course description

This course will provide students with a critical examination of problem areas of current interest in financial accounting theory. Practical and theoretical problems of the present value model, historical costs, decision usefulness, portfolio risk, efficient securities markets, fair-value-oriented standards with application to traditional accounting, positive accounting theory, game and agency theory, executive compensation and earnings management will be examined. Economic and political issues and criteria related to standard setting, in Canada, the U.S., and internationally, will also be discussed, as well as the contribution of economics, finance and other disciplines to accounting theory.

Course content

Accounting under ideal conditions: present value model, reserve recognition accounting, historical cost accounting.
Decision usefulness approach to financial reporting: single person decision theory, rational, risk averse investor, portfolio diversification, optimal investment decisions, portfolio risk.
Efficient securities markets and their implications for financial reporting: informativeness of price, capital asset pricing model, information asymmetry.
Information perspective on decision usefulness: market response, earnings response coefficients, unusual, non-recurring and extraordinary items.
Measurement perspective on decision usefulness: theories relating to the efficiency of securities markets.
Measurement perspective applications: traditional reporting, fair-value-oriented standards, financial instruments, accounting for intangibles, reporting on risk.
Economic consequences: employee stock options, government assistance, successful-efforts accounting, positive accounting theory (PAT).
Analysis of conflict: game theory (non-cooperative and cooperative), agency theory.
Executive compensation: theory, incentives, compensation plans, role of risk, politics.
Earnings management: motivations, patterns, “good” and “bad” side of earnings management.
Standard setting – economic issues: private incentives for information production, sources of market failure, regulation of economic activity and decentralization regulation.
Standard setting – political issues: public interest and interest group theories; standard setting in Canada and the U.S., International Accounting Standards Boards (IASB), conflict and compromise, criteria for standard setting.

Learning activities

Lectures, seminars and case analysis. All methods of instruction apply to in class, hybrid and/or online modes of learning.

Means of assessment

Evaluation will be carried out in accordance with the Douglas College Evaluation Policy.

Assignments/projects/tests AND case analysis	30%
Midterm examination	35%
Final examination	35%
Total	100%

Students must write both the midterm examinations and the final examinations to pass the course.

Students may conduct research as part of their coursework in this class. Instructors for the course are responsible for ensuring that student research projects comply with College policies on ethical conduct for research involving humans, which can require obtaining Informed Consent from participants and getting the approval of the Douglas College Research Ethics Board prior to conducting the research.

Learning outcomes

At the end of the course, the successful student should be able to:

describe various theories that underlie financial accounting and reporting;
explain the impact of accounting policies on financial accounting and reporting;
explain the impact of financial accounting and reporting on securities markets;
explain game and agency theories and their implications for accounting;
explain the criteria, and the economic and political issues involved in the standard setting process;
demonstrate awareness of ethical and professional standards and responsibilities of financial management professionals.

Textbook materials

Textbooks and Materials to be Purchased by Students

Required: William R. Scott. Financial Accounting Theory, latest Canadian edition. Prentice-Hall, Toronto, or other textbooks as approved by department.

Optional (at discretion of instructor): Schroeder, Clark and Cathey, Financial Accounting Theory and Analysis: text readings and cases, latest edition. John Wiley & Sons Inc.

Instructor compiled materials (if applicable)

Only Faculty of Commerce and Business approved calculators may be used in examinations.

Requisites

Prerequisites

(ACCT 3310 OR ACCT 3410) AND (FINC 2340)

OR ACCT 3310 and currently active in:

PBD Accounting
PBD Accounting & Finance
PDD Accounting Studies
PDD Accounting

OR Instructor's Approval

Corequisites

No corequisite courses.

Equivalencies

No equivalent courses.

Course Guidelines

Course Guidelines for previous years are viewable by selecting the version desired. If you took this course and do not see a listing for the starting semester / year of the course, consider the previous version as the applicable version.

January 2025 (Current)

Course Transfers to Other Institutions

Below are current transfer agreements from Douglas College to other institutions for the current course guidelines only. For a full list of transfer details and archived courses, please see the BC Transfer Guide.

Institution	Transfer details for ACCT 4850
Acsenda School of Management (ASM)	ASM ACCT 435 (3)
Athabasca University (AU)	AU ACCT 4XX (3)
Capilano University (CAPU)	CAPU BFIN 3XX (3)
College of the Rockies (COTR)	COTR ACCT 4XX (3)
Kwantlen Polytechnic University (KPU)	KPU ACCT 4199 (3)
Langara College (LANG)	LANG FMGT 4221 (3)
Simon Fraser University (SFU)	SFU BUS 2XX (3)
Trinity Western University (TWU)	TWU BUSI 3XX (3)
University Canada West (UCW)	UCW ACCT 3XX (3)
University of British Columbia - Vancouver (UBCV)	No credit
University of Northern BC (UNBC)	UNBC COMM 4XX (3)
University of the Fraser Valley (UFV)	UFV BUS 443 (3)
University of Victoria (UVIC)	UVIC COM 4XX (1.5)
Vancouver Island University (VIU)	VIU ACCT 421 (3)